Poland Seeks $11 Billion Aid Package

By Leonard Downie Jr. and Washington Post Foreign Service; Contributing to this story were Washington Post Staff Writer James L. Rowe Jr. in New YorkMarch 7, 1981

Poland has asked Western governments and banks for a massive $10.9 billion rescue package to help solve its severe financial crisis.

In meetings with officials of 15 Western governments in Paris last week and with representatives of 70 Western banks here yesterday, Polish officials said much of the financial assistance was needed to make or defer payments due this year on $23 billion Poland already owes the West, according to participants in the session.

Without this help, the Polish officials reportedly warned, the Warsaw government would have to reduce sharply its imports of "necessities" from the West, most of which are bought on credit. Banking sources said the alternative to refinancing could be default on Poland's debts to Western banks and governments.

The Polish government is seeking their agreement on the refinancing package by April, when the Polish Communist Party congress is scheduled. Meeting its financial emergency is pictured as crucial to the government's attempts to satisfy internal demands for economic and other reforms without risking armed intervention by the Soviet Union.

Western government officials and bankers are scheduled to meet again in Warsaw next week to consider Poland's request further. Banking sources here said it will take time to study the package, which essentially proposes that Poland be freed from making payments on its debts to the West until 1986 when it hopes to have erased a serious balance of payments deficit. Western banks and governments would have to lend Poland still more in the meantime to refinance debts as they come due.

West Germany is reportedly Poland's largest creditor, followed by the United States, France, Britain and Austria. Much of the money they and other Western nations lend Poland is in the form of export credits, governmment-guaranteed bank loans to enable Poland to buy goods from Western exporters.

In Paris last week, Polish officials reportedly asked export credit officials of the 15 creditor nations to reschedule over the next 10 years repayment of $4.4 billion in export credits due this year. Poland would pay nothing on this debt during a "grace period" covering the first five years under this arrangement, according to informed sources.

Poland also is said to have asked the Western governments for $3.4 billion in new government-guaranteed export credits to cover its current trade deficit and interest it owes on its foreign debt.

The bankers who met with Polish officials here yesterday were asked to refinance for eight to ten years repayment due this year of $3.1 billion in loans to Poland that are not covered by government guarantees, including about $1 billion Poland asked for immediately. Poland would pay nothing on the $3.1 debt for the next five years.

Bankers involved in the talks said the Poles also are requesting unspecified short-term assistance, believed more than $1 billion, in addition to the $10.9 billion rescue package designed to cover longer term needs.

The Polish delegation led by K. Woloszyn, deputy president of Bank Handlowy, Poland's foreign trade bank, described to the Western bankers an economic stability program designed to make it possible for Poland to repay its debts later this decade, according to banking sources. It is unclear whether banks and governments involved could closely monitor this strategy, as the International Monetary Fund tries to when supervising the refinancing of debts of IMF member nations.

The massive refinancing requires consensus among 15 countries with varying legal requirements and among many more banks than the 70 represented at yesterday's meeting here. It also requires political decisions by the Western nations about what economic reforms to seek in Poland as conditions for the refinancing and how they might affect its relationship with the Soviet Union.

Western diplomats believe the Soviet Union would be pleased to have the West rescue Poland financially so long as it does not lead to threatening political changes, according to a recent study published by the Royal Institute of International Affairs here. Polish officials told Western bankers here that the Soviet Union has given Poland $1.1 billion in financial aid this year, at least half of it interest-free.

Western banking and diplomatic sources generally have indicated a sympathetic attitude toward the Polish request, recognizing that Poland has severe financial problems that must be addressed very soon.

"These matters are still under discussion on the government side," said one U.S. official, adding that the Poles still have "a lot to do to get their house in order.They clearly have to restore credit worthiness."

Banking sources voiced similar positions.

"Everyone realizes they need help," said one banker involved in yesterday's meeting. "The basic will is to do something, but what they are asking is very, very difficult. The interesting question is what they, the Soviets and the other Eastern European countries will do if Warsaw does not get everything it is asking for."

Poland's current desperate economic situation is a combination of disastrous long-term mismanagement in both industry and farming and the shorter-term fall-out of the political turmoil of the past eight months that at times brought Polish industrial and mining output to a standstill.

Beginning in the early 1970s, Poland committed itself to a strategy of importing expensive Western technology with money borrowed in the West in an effort to modernize its backward industrial plant. Productivity and needed sales to the West simply failed to keep the pace necessary to repay the massive Western loans, however, and successive harvest failures only added to the problems which eventually exploded in labor and political unrest last summer.

Some Western assessments say the country still is operating at only about 40 percent of capacity, even though the level of strike activity has dropped almost to zero in recent weeks under a 90-day strike moratorium accepted by the independent union federation, Solidarity.

Analysts say continued labor peace would augur well for working out some type of financial arrangement with Western creditors, although reports of unrest surfacing today can only add to the nervousness felt by some of the Western banks, in particular.